GreenSpace Brands is undervalued, Beacon Securities says

GreenSpace Brands After reporting its third quarter financial results for December 31, 2017, GreenSpace Brands (GreenSpace Brands Stock Quote, Chart, News: TSXV:JTR) keeps its “Buy” rating from Beacon Securities analyst Doug Cooper, who says that FY19 is shaping up to be a huge year for the natural and organic foods company.

This week, Toronto-based GreenSpace Brands’ Q3/FY18 results arrived in line with analysts’ expectations, producing gross revenue of $16.3 million (versus $10.1 million for the same period a year ago), representing a 62 per cent increase. The company posted a net loss of $685,000 or one cent per share in comparison to a $926,000 loss or three cents per share a year ago.

GreenSpace’s year-on-year growth was a notable 29 per cent, three times the industry average, says Cooper, who attributes the success to strong organic growth from the company’s existing portfolio (e.g., Love Child organic foods for infants and toddlers and Central Roast snack foods) but also from key acquisitions such as juice brands Kiju and Cedar. (GreenSpace also recently acquired Galaxy Nutritional Foods and its GoVeggie brand of products for $17.8 million, a deal which closed in late January and was not included in its Q3 report.)

“Aside from entering new doors, we believe JTR’s brands continue to growth within its existing footprint – as evidenced by its much better than industry average growth rate,” says the analyst in a report to clients on Friday.

Cooper has tweaked his forecast accordingly, estimating re/EBITDA for FY18 at $65.2M/$1.7M (from $69.1M/$2.4M) and for FY19 at $102.1M/$4.1M (from $102.2M/$4.5M).

“We continue to believe JTR is undervalued at ~1x sales,” says the analyst. “Recent acquisitions such as Hershey’s purchase of Amplify and its Skinny Pop brand at 4x sales show that the sum of all JTR’s brands is likely worth more than whole as reflected by the current stock price. For example, a market value for Love Child could equal the entire market cap of the company leaving all of its other brands as free options,” he says.

The analyst maintains his “Buy” rating and $2.65 target price, representing a one-year potential return of 85 per cent at the time of publication.